By Brent Kendall and Jared S. Hopkins 

This week's indictment of Teva Pharmaceutical Industries Ltd.'s U.S. subsidiary on price-fixing charges came after a last-minute staredown with the Justice Department in which neither side blinked.

Prosecutors have been investigating alleged collusion among generic drugmakers for years, and while a series of cases and settlements had fallen into place this year, Teva had been more resistant than other drugmakers in their discussions with the Justice Department.

The department was preparing to charge Teva but gave the company a chance to appeal to top officials, which it did without success, said a person familiar with the matter.

Last-ditch talks Tuesday involving Teva Chief Executive Officer Kare Schultz and the department's top antitrust official, Makan Delrahim, failed to produce a deal. The charges followed later that day.

Teva, while seeking to avoid charges, at a minimum wanted the department to narrow its allegations and agree to a considerably smaller penalty than it was seeking, said the person. The department, however, believed it already had offered some accommodations to Teva and wanted penalties equivalent at least to what other similarly situated firms had paid; Taro Pharmaceuticals Inc., for instance, agreed to a $205.7 million settlement.

Teva, in arguing against charges and significant penalties, touted its role as a manufacturer of therapeutics during the coronavirus pandemic, but the department's view was that a negotiated settlement wouldn't have interfered with the company's ability to manufacture and sell such medications, the person said.

Mr. Schultz, in an interview, acknowledged he personally participated in the talks this week and said the principal stumbling block was over the government's insistence that the company admit it engaged in wrongdoing.

Teva conducted its own investigation and "didn't see any evidence that the company had taken part in price fixing or collusion, so we had a hard time admitting to a crime we hadn't committed," said Mr. Schultz, who has led the company since 2017 -- after the alleged price fixing took place.

He declined to comment on the financial demands of the Justice Department. A Teva spokeswoman declined to comment on whether the company cited the pandemic as a reason to work out an agreement.

A department spokeswoman declined to comment.

Israel-based Teva is one of the world's largest generic drugmakers, with sales totaling nearly $17 billion last year. Generic medications account for some 90% of medications dispensed annually in the U.S.

The indictment of Teva includes three felony counts, with prosecutors alleging the company engaged in three separate conspiracies of price fixing, bid-rigging and related collusive activities on a range of drugs, including treatments for high cholesterol, blood clots and skin conditions.

The indictment, made public Wednesday, alleged Teva and co-conspirators communicated regularly to increase and maintain the prices for generic drugs and effectively allocated customers by agreeing in advance who would win bids for business. Pharmaceutical firms contract with customers like wholesalers, insurers, drugstore chains and group-purchasing organizations.

Court papers indicated that prosecutors have cooperating witnesses from inside multiple generic-drug manufacturers, including Teva.

Mr. Schultz said that former Teva employee Nisha Patel is the Justice Department's "key person" but alleged that she has changed her testimony several times, including after receiving legal protections from the government. "I would think in the courtroom that would cast some doubt about the value of the statements from this person," he said.

Larry Mackey, an attorney for Ms. Patel, declined to comment.

According to a related civil lawsuit filed by state attorneys general, Ms. Patel worked at the company from 2013 to 2016 and allegedly played a central role in the price fixing of dozens of drugs.

During her time at Teva, the states alleged, citing email, text and phone records, she was in frequent contact with executives at rival generic companies to fix prices. She allegedly compiled a spreadsheet to track potential products for coordinated price hikes, ranking competitors' product positions in the market.

According to the states' allegations, in 2014 alone, Teva communicated with employees at other companies, by phone or text message, 941 times. More than 80% of those communications involved Ms. Patel and another Teva employee.

Teva itself had an opportunity earlier in the investigation to secure legal protections from the Justice Department in exchange for its assistance, but other targets of the probe agreed to help the government instead, the person familiar with the matter said. Mr. Schultz declined to comment.

If the case goes to trial, Teva will likely have to grapple with the fact that rival companies that allegedly colluded with Teva, like Taro Pharmaceuticals and Novartis AG's Sandoz subsidiary, have already admitted to wrongdoing in deals with the Justice Department that will allow them to avoid prosecution.

Asked about those admissions, Mr. Schultz said companies typically reach deals when it is in their best interests and to avoid expensive and lengthy trials. And he didn't rule out the possibility of Teva reaching an agreement with the department in the future.

According to court records from the state attorneys general litigation, the company's legal team has included Marc Kasowitz, a prominent New York lawyer with a list of high-profile clients -- including President Trump.

Going to trial isn't without risks for both sides. Teva could potentially be on the hook for criminal penalties of $300 million or more if it is convicted, and a conviction could lead to it being excluded from federal health care programs.

The company also faces the prospect of civil liability to the government and private plaintiffs.

A courtroom conflict would also bring risks for the government, which usually resolves this type of case without going to trial. The Justice Department has won some prominent cases that were litigated, including the 2012 conviction of AU Optronics for price fixing on LCD screens and last year's conviction of the former CEO of Bumble Bee Foods for fixing prices on canned tuna. But it also lost a notable case in 2018 when three British bank traders were acquitted of price fixing in the foreign-exchange market.

Write to Brent Kendall at and Jared S. Hopkins at


(END) Dow Jones Newswires

August 27, 2020 17:06 ET (21:06 GMT)

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